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MINDSET SHIFT: EMPLOYEE TO ENTREPRENEUR

BY JAMES OH

Saturday, September 11, 2010

SAVERS ARE LOSERS

Dear Readers and Visitors,

Lots of people providing financial advice usually tell people to “save their money” to get ahead. This have proven very true in the past, prior to changes in 1971. However, the question arises whether this is still true in today's context. Before we discuss further, it may be appropriate for us to touch on the significant events in 1971, where economic measures taken by U.S. President Richard Nixon in unilaterally canceling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.

Due to the above changes, some financial advisers advocate that Savers are Losers. Though it might sound radical, however does it really make sense to save your money in today's economy? The answer is yes and no.

Why we say that the answer to the question is in the affirmative because some of you may be aware that the inflation rate is very much higher than the savings rate you earn from fixed deposit. As a result, it does not make sense to save in the form of deposit except for your contingency and emergency purposes. This is crucial for those who do not have insurance policy for their needs.

With this in mind, of course it makes more sense to hold securities in other forms than hard cash. Consequently, people became more incline to invest in commodities, real estate, shares and bonds as their hedging and investment tools which they believe to generate higher yields. This is true to some extent, if you enter and exit at the right timing. Timing is always the issue in any form of investment. You don't need a genius to figure it out for you.

However, when there is heavy speculation, then the price will go up. Those who entered the market much earlier will make some profit. That is the game. The question that arises is when will the price reach its peak level. To have a better guage of the situation, you need to have relevant information that has an impact on those commodities. Your entry and exit point of your investment is crucial. The difference will give rise to the return of your investment. This will be the mechanism you ought to know. However, you also need to know that if these prices keep on increasing, the appropriate authority will have to step in so as to reflect that they are tackling the issue. As a result, you may see the reversal trend appears on the market. Such an unhealthy trend so called to be curbed by the policy makers by imposing a much higher saving rate so as to reduce its impact to the society. If this issue is not well addressed, then this will add unnecessary burden to the lower income group especially, salary earners. If left unchecked, it will cause chaos to society at the end of the day.

As such, If these trends for the long term are in the upward trend, then it makes more sense to invest on the above instruments rather than savings. As the market is flooded with liquidity, the investors have to turn them into other forms of instrument other than cash. Then the above argument holds water.

However, at the accumulation stage of wealth, you may need to save by cutting down unnecessary expenses so long as you spend on the area where it can give you a better return in terms of health, enhance your productivity or assets value. Here, you must be cautious of spending on those areas that really can generate a higher yield to you. Every cent you save must be well spent to enhance those values so that you are either able to reduce your expenses substantially now or in the near future. Then you are actually added value to your net worth at the end of the day.

By now, we hope we have given you a good insight of accuracy of the above statement so as to enhance your wealth management skills at the end of the day. This is crucial so as to reduce your unnecessary worries so as to lift you up in this critical aspect of life. No doubts money will bring you unnecessary misery, but lack of it will also give you tremendous misery as well. Of course, the latter is much better than the former, we believe.

Please don't forget to share with us your views, both good and bad.

Thank for your time to read this article. Wishing you a great success.

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